Third quarter net sales increase 4.4 percent to a record $655.8 million

BLOOMINGTON, Minn.--(BUSINESS WIRE)--Aug. 23, 2018--
The Toro Company (NYSE: TTC) today reported net earnings of $79.0
million, or $0.73 per share, on a net sales increase of 4.4 percent to
$655.8 million for its third quarter ended August 3, 2018. Adjusted 2018
third quarter net earnings were $73.5 million, or $0.68 per share,
compared to adjusted net earnings of $65.5 million, or $0.58 per share
in the comparable 2017 period, an increase of 17.2 percent.

For the first nine months, Toro reported net earnings of $232.9 million,
or $2.14 per share, on a net sales increase of 3.1 percent to $2,079.3
million. Due to the one-time impacts of U.S. tax reform, the first nine
months reported net earnings were slightly lower than the comparable
2017 reported net earnings of $233.9 million, on net sales of $2,016.5
million. For the first nine months, adjusted net earnings were $255.9
million, or $2.35 per share, compared to adjusted net earnings of $215.0
million, or $1.93 per share, in the comparable 2017 period, an increase
of 21.8 percent. Please see the tables provided for a reconciliation of
non-GAAP adjusted net earnings and adjusted diluted earnings per share
to the comparable GAAP measures.

Third quarter operating earnings as a percent of sales were 14.2
percent, an improvement of 20 basis points compared to 14.0 percent in
the same period last year. Operating earnings as a percent of sales for
the first nine months was 15.9 percent, an improvement of 60 basis
points compared to the same period last year.

The reported tax rate for the third quarter was 15.3 percent compared to
22.6 percent last year. The adjusted tax rate for the third quarter was
21.2 percent compared to the adjusted tax rate of 25.9 percent in the
same period last year. For the quarter, the adjusted tax rate excludes
the benefit of the excess tax deduction for share-based compensation, as
well as adjustments to the provisional tax items recorded in the first
quarter of fiscal 2018. For the first nine months, the reported tax rate
was 29.2 percent, up from 23.6 percent in the same period last year. The
adjusted tax rate was 22.2 percent, down from 29.8 percent for the
comparable period. The adjusted rates were significantly impacted by the
enactment of U.S. tax reform as previously reported. The unfavorable
impact of one-time charges associated with the provisional
re-measurement of deferred tax assets and liabilities, and provisional
calculation of the deemed repatriation tax, were partially offset by the
benefit resulting from the reduction in the federal corporate tax rate.
The company continues to estimate that its full fiscal year adjusted
2018 effective income tax rate will be about 23 percent.

“As anticipated, we saw strong demand for our walk power and zero-turn
mowers as our residential business rebounded nicely after the slow start
to spring,” said Richard M. Olson, Toro’s chairman and chief executive
officer. “The success of new products also helped bolster sales in our
landscape contractor businesses, which drove professional segment
revenue growth for the quarter. New products like the Exmark® Radius®,
the Toro® TITAN® HD and the new diesel-powered zero-turn mowers in our
landscape contractor businesses, have been well received by customers,”
said Olson.

“Looking ahead, both our BOSS Snowplow and residential snow businesses
have strong orders in hand and are well positioned for the coming
season. We are excited about new innovative product introductions like
the Toro Power Max® HD two-stage snow thrower and the BOSS rear-mounted
plow that allows the operator to efficiently pull and clear snow for
enhanced productivity. Other customer favorites, like the EXT extendable
plow and our line of V-box spreaders, continue to build momentum.”

“In an environment of increasing input costs, particularly for steel and
freight, we are committed to leveraging operational efficiencies, with a
continued emphasis on productivity to mitigate the inflationary
pressures. Further, we have implemented price increases across our
businesses. We expect to realize the full effect of current pricing and
productivity measures in fiscal 2019. With the fourth quarter underway,
we remain focused on our strategic priorities, including investing in
product and process innovations for the long term. The team’s dedication
and execution in these areas have us well positioned to deliver on our
commitment for another record year.”

In view of the foregoing, the company now expects adjusted net earnings
per share to be about $2.66 to $2.69 for fiscal 2018, which reflects the
net near-term impact of recently announced and enacted trade policy
changes, tariffs and related inflationary pressures on our input costs.
These adjusted estimates exclude the one-time charges associated with
U.S. tax reform and the benefit of the excess tax deduction for
share-based compensation. The company continues to expect revenue growth
for fiscal 2018 to be about 4 percent.

SEGMENT RESULTS

Professional

Professional segment net sales for the third quarter were $482.5
million, up 3.0 percent from $468.6 million last year. Strong sales of
our landscape contractor equipment was the key driver of the positive
results for the quarter. The new zero-turn mowers introduced this year
in both the Exmark and Toro landscape businesses have been well
received by customers. For the first nine months, professional segment
net sales were $1,546.5 million, up 6.6 percent from the comparable
2017 period. Strong demand for landscape contractor zero-turn mowers,
large reel golf and grounds equipment, and our rental and specialty
construction equipment all contributed to the results for the period.

Professional segment earnings for the third quarter were $97.7
million, up 0.4 percent from $97.4 million in the same period last
year. Professional segment earnings for the first nine months were
$338.6 million, up 7.6 percent from $314.5 million compared to the
same period last year.

Residential

Residential segment net sales for the third quarter were $166.5
million, up 9.5 percent from $152.1 million last year. Favorable
weather in our key turf selling season in North America resulted in
strong channel demand for our walk power and zero-turn riding mower
categories for the quarter. For the first nine months, residential
segment net sales were $521.2 million, down 5.4 percent from $550.7
million last year. Below average snowfall early in the season and a
late start to spring negatively impacted sales of our residential turf
and snow thrower products for the period.

Residential segment earnings for the third quarter were $16.0 million,
up 40.9 percent from $11.4 million in the comparable period last year.
Residential segment earnings for the first nine months were $58.0
million, down 7.9 percent from $63.0 million in the same period last
year.

OPERATING RESULTS

Gross margin as a percent of sales for the third quarter was 35.6
percent, a decrease of 50 basis points compared to last year. For the
first nine months, gross margin as a percent of sales was 36.6 percent,
an increase of 10 basis points. For the third quarter, unfavorable
commodity and freight costs, supply challenges, as well as the negative
impact of segment mix, contributed to the decline. The decline was
partially offset by net price realization and productivity efforts. For
the first nine months, net price realization, favorable foreign currency
and the positive impact of segment mix were offset by increased
commodity and freight costs and supply challenges.

Selling, general and administrative (SG&A) expense as a percent of sales
for the third quarter was 21.4 percent, a decrease of 70 basis points
from the same period last year. For the first nine months, SG&A expense
as a percent of sales was 20.8 percent, a decrease of 50 basis points.
Prudent expense management and leveraging of costs over higher sales
contributed to the decline in both periods. The decrease for both
periods was offset in part by continued investment in our key strategic
initiatives, including new product development.

Accounts receivable at the end of the third quarter were $219.5 million,
down one percent from last year. Net inventories were $364.5 million, up
4.4 percent from last year. This increase was mainly due to slightly
elevated WIP inventory levels across multiple businesses caused by
supply challenges. Trade payables were $229.0 million, up 8.3 percent
from the comparable period last year.

About The Toro CompanyThe Toro Company (NYSE: TTC) is a
leading worldwide provider of innovative solutions for the outdoor
environment including turf maintenance, snow and ice management,
landscape, rental and specialty construction equipment, and irrigation
and outdoor lighting solutions. With sales of $2.5 billion in fiscal
2017, Toro’s global presence extends to more than 125 countries. Through
constant innovation and caring relationships built on trust and
integrity, Toro and its family of brands have built a legacy of
excellence by helping customers care for golf courses, sports fields,
public green spaces, commercial and residential properties and
agricultural operations. For more information, visit www.thetorocompany.com.

The Toro Company will conduct its earnings call and webcast for
investors beginning at 10:00 a.m. CDT on August 23, 2018. The webcast
will be available at www.streetevents.com
or at www.thetorocompany.com/invest.
Webcast participants will need to complete a brief registration form and
should allocate extra time before the webcast begins to register and, if
necessary, download and install audio software.

Use of Non-GAAP Financial InformationThis press release and
our related earnings call contain certain non-GAAP financial measures,
consisting of “adjusted" effective tax rate, net earnings and net
earnings per diluted share as measures of our operating performance.
Management believes these measures may be useful in performing
meaningful comparisons of past and present operating results, to
understand the performance of its ongoing operations and how management
views the business. Reconciliations of adjusted non-GAAP measures to
reported GAAP measures are included in the financial tables contained in
this press release. These measures, however, should not be construed as
an alternative to any other measure of performance determined in
accordance with GAAP.

The Toro Company does not attempt to provide reconciliations of
forward-looking non-GAAP EPS guidance to projected GAAP EPS guidance
because the combined impact and timing of recognition of these potential
charges or gains is inherently uncertain and difficult to predict and is
unavailable without unreasonable efforts. In addition, we believe such
reconciliations would imply a degree of precision and certainty that
could be confusing to investors. Such items could have a substantial
impact on GAAP measures of financial performance.

Forward-Looking StatementsThis news release contains
forward-looking statements, which are being made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based on management’s current
assumptions and expectations of future events, and often can be
identified by words such as “expect,” “strive,” “looking ahead,”
“outlook,” “guidance,” “forecast,” “goal,” “optimistic,” “anticipate,”
“continue,” “plan,” “estimate,” “project,” “believe,” “should,” “could,”
“will,” “would,” “possible,” “may,” “likely,” “intend,” “can,” “seek,”
“potential,” “pro forma,” or the negative thereof or similar
expressions. Forward-looking statements involve risks and uncertainties
that could cause actual events and results to differ materially from
those projected or implied. Particular risks and uncertainties that may
affect our operating results or financial position include: worldwide
economic conditions, including slow or negative growth rates in global
and domestic economies and weakened consumer confidence; disruption at
our manufacturing or distribution facilities, including drug
cartel-related violence affecting our maquiladora operations in Juarez,
Mexico; fluctuations in the cost and availability of raw materials and
components, including steel, aluminum, engines, hydraulics and resins;
the impact of abnormal weather patterns, including unfavorable weather
conditions exacerbated by global climate change or otherwise; the impact
of natural disasters and global pandemics; the level of growth or
contraction in our key markets; government and municipal revenue, budget
and spending levels; dependence on The Home Depot as a customer for our
residential business; elimination of shelf space for our products at
dealers or retailers; inventory adjustments or changes in purchasing
patterns by our customers; our ability to develop and achieve market
acceptance for new products; increased competition; the risks attendant
to international relations, operations and markets, including political,
economic and/or social instability and conflict, tax, trade and tariff
policies in the U.S. and other countries in which we manufacture or sell
our products, and implications of the United Kingdom’s process for
exiting the European Union; foreign currency exchange rate fluctuations;
our relationships with our distribution channel partners, including the
financial viability of our distributors and dealers; risks associated
with acquisitions; management of our alliances or joint ventures,
including Red Iron Acceptance, LLC; the costs and effects of enactment
of, changes in, and compliance with laws, regulations and standards,
including those relating to consumer product safety, accounting,
taxation, trade and tariffs, healthcare, and environmental, health and
safety matters; unforeseen product quality problems; loss of or changes
in executive management or key employees; the occurrence of litigation
or claims, including those involving intellectual property or product
liability matters; and other risks and uncertainties described in our
most recent annual report on Form 10-K, subsequent quarterly reports on
Form 10-Q, and other filings with the Securities and Exchange
Commission. We make no commitment to revise or update any
forward-looking statements in order to reflect events or circumstances
occurring or existing after the date any forward-looking statement is
made.

THE TORO COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings (Unaudited)

(Dollars and shares in thousands, except per-share data)

Three Months Ended

Nine Months Ended

August 3, 2018

August 4, 2017

August 3, 2018

August 4, 2017

Net sales

$

655,821

$

627,943

$

2,079,347

$

2,016,549

Gross profit

233,653

226,785

761,948

736,579

Gross profit percentage

35.6

%

36.1

%

36.6

%

36.5

%

Selling, general and administrative expense

140,759

139,001

431,859

428,929

Operating earnings

92,894

87,784

330,089

307,650

Interest expense

(4,676

)

(4,750

)

(14,214

)

(14,309

)

Other income, net

5,057

5,349

12,951

12,916

Earnings before income taxes

93,275

88,383

328,826

306,257

Provision for income taxes

14,266

19,979

95,924

72,388

Net earnings

$

79,009

$

68,404

$

232,902

$

233,869

Basic net earnings per share of common stock

$

0.75

$

0.63

$

2.19

$

2.16

Diluted net earnings per share of common stock

$

0.73

$

0.61

$

2.14

$

2.10

Weighted-average number of shares of common stock outstanding — Basic

105,751

108,456

106,474

108,434

Weighted-average number of shares of common stock outstanding —
Diluted

THE TORO COMPANY AND SUBSIDIARIESReconciliation of
Non-GAAP Financial Measures (Unaudited)(Dollars in
thousands, except per-share data)

The company has provided non-GAAP financial measures, which are not
calculated or presented in accordance with accounting principles
generally accepted in the United States ("GAAP"), as information
supplemental and in addition to the most directly comparable financial
measures presented in the accompanying press release that are calculated
and presented in accordance with GAAP. Such non-GAAP financial measures
should not be considered superior to, as a substitute for, or as an
alternative to, and should be considered in conjunction with, the GAAP
financial measures presented in the press release. The non-GAAP
financial measures in the accompanying press release may differ from
similar measures used by other companies.

The following tables provide reconciliations of financial measures
calculated and reported in accordance with GAAP as well as adjusted
non-GAAP financial measures presented in the accompanying press release
for the three and nine month periods ended August 3, 2018 and August 4,
2017. The company believes these measures may be useful in performing
meaningful comparisons of past and present operating results, to
understand the performance of its ongoing operations, and how management
views the business. The following is a reconciliation of our net
earnings, diluted earnings per share ("EPS"), and effective tax rate to
our adjusted net earnings, adjusted diluted EPS, and adjusted effective
tax rate:

Net Earnings

Diluted EPS

Effective Tax Rate

Three Months Ended

August 3, 2018

August 4, 2017

August 3, 2018

August 4, 2017

August 3, 2018

August 4, 2017

As Reported - GAAP

$

79,009

$

68,404

$

0.73

$

0.61

15.3

%

22.6

%

Impacts of tax reform1:

Net deferred tax asset revaluation2

(1,200

)

—

(0.01

)

—

1.3

%

—

%

Deemed repatriation tax3

700

—

0.01

—

(0.8

)%

—

%

Benefit of the excess tax deduction for share-based compensation4

(5,025

)

(2,934

)

(0.05

)

(0.03

)

5.4

%

3.3

%

As Adjusted - Non-GAAP

$

73,484

$

65,470

$

0.68

$

0.58

21.2

%

25.9

%

Net Earnings

Diluted EPS

Effective Tax Rate

Nine Months Ended

August 3, 2018

August 4, 2017

August 3, 2018

August 4, 2017

August 3, 2018

August 4, 2017

As Reported - GAAP

$

232,902

$

233,869

$

2.14

$

2.10

29.2

%

23.6

%

Impacts of tax reform1:

Net deferred tax asset revaluation2

19,313

—

0.18

—

(5.9

)%

—

%

Deemed repatriation tax3

13,300

—

0.12

—

(4.0

)%

—

%

Benefit of the excess tax deduction for share-based compensation4

(9,638

)

(18,861

)

(0.09

)

(0.17

)

2.9

%

6.2

%

As Adjusted - Non-GAAP

$

255,877

$

215,008

$

2.35

$

1.93

22.2

%

29.8

%

1 The actual impact of the U.S. tax reform may differ from
our estimates, due to, among other things, changes in interpretations
and assumptions we have made, guidance that may be issued, and changes
in our structure or business model.

2 Signed into law on December 22, 2017, the Tax Cuts and Jobs
Act ("Tax Act"), reduced the U.S. federal corporate tax rate from 35.0
percent to 21.0 percent, effective January 1, 2018, resulting in a
blended U.S. federal statutory tax rate for the company of 23.3 percent
for the fiscal year ended October 31, 2018. This reduction in rate
requires the re-measurement of the company's net deferred taxes as of
the date of enactment, which resulted in a non-cash benefit of $1.2
million and a non-cash charge of $19.3 million during the three and nine
month periods ended August 3, 2018, respectively.

3 The Tax Act imposed a one-time deemed repatriation tax on
the company's historical undistributed earnings and profits of foreign
affiliates which resulted in charges of $0.7 million and $13.3 million
during the three and nine month periods ended August 3, 2018,
respectively, payable over eight years.

4 In the first quarter of fiscal 2017, the company adopted
Accounting Standards Update No. 2016-09, Stock-based Compensation:
Improvements to Employee Share-based Payment Accounting, which
requires that any excess tax deduction for share-based compensation be
immediately recorded within income tax expense. The company recorded
discrete tax benefits of $5.0 million and $9.6 million as excess tax
deductions for share-based compensation during the three and nine months
ended August 3, 2018, respectively. The Tax Act reduced the U.S. federal
corporate tax rate, which reduced the tax benefit related to share-based
compensation by $2.2 million and $4.2 million for the for the three and
nine month periods ended August 3, 2018, respectively.